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How to Execute a Backdoor Roth Conversion

By Felix Thorpe · Retirement Accounts Writer

What a backdoor Roth conversion is and why you'd do one

A backdoor Roth conversion is a two-step process that lets you move money into a Roth IRA when your income is too high to contribute directly. The IRS does not prohibit it, but it works only if you follow the steps in the exact order and file the right tax forms.

Here is the basic sequence: you contribute money to a traditional IRA (which has no income limit), then immediately convert that money to a Roth IRA. The conversion itself is taxable in the year you do it, but once the money is in the Roth, future growth and withdrawals are tax-free if you follow the withdrawal rules.

You would do this if your Modified Adjusted Gross Income (MAGI) exceeds the Roth IRA contribution limit for your filing status. For 2024, direct Roth contributions phase out starting at $146,000 for single filers and $230,000 for married filing jointly. The limits change each year.

Key Takeaways

  • A backdoor Roth requires you to contribute to a traditional IRA first, then convert it to a Roth IRA within the same tax year or shortly after.
  • You must file Form 8606 with your tax return to report the conversion and avoid being taxed twice on the same money.
  • If you have other traditional IRA balances, the pro-rata rule may force you to pay tax on a portion of the conversion, even if you only converted after-tax contributions.
  • The conversion itself is a taxable event in the year you perform it, so plan for the tax bill before you convert.
  • Backdoor Roths work regardless of income, but the tax consequences depend on your existing IRA balances and whether you have made pre-tax contributions.

Step one: contribute to a traditional IRA

Open or use an existing traditional IRA at a brokerage, bank, or investment firm. Contribute money that you have already paid income tax on—this is called an after-tax contribution. The contribution limit for 2024 is $7,000 per person (or $8,000 if you are age 50 or older).

Do not claim a tax deduction for this contribution on your tax return. If you claim a deduction, the IRS will treat the money as pre-tax, and the conversion will be partially taxable. You want the IRS to know this money came from after-tax dollars.

You can contribute to a traditional IRA at any time during the tax year or up to the tax filing deadline (usually April 15 of the following year). Many people do the backdoor conversion right after the contribution, sometimes within days, to minimize the risk of market changes.

Step two: convert the traditional IRA to a Roth IRA

Contact your brokerage or bank and request a Roth conversion. You are moving the money from the traditional IRA to a Roth IRA—either one you already own or a new one you open at the same institution.

The conversion is a taxable event. The IRS treats it as if you withdrew the money from the traditional IRA and immediately put it into the Roth. If the money has earned any interest or gains since you contributed it, you owe income tax on those gains in the year of conversion.

Most brokerages can process this in one business day. Some people use a trustee-to-trustee transfer, where the IRA custodian moves the money directly from one account to the other without the money passing through your hands. This is the cleanest method and avoids any appearance of a withdrawal.

The pro-rata rule and why existing IRA balances matter

If you have any other traditional IRAs, SEP IRAs, or SIMPLE IRAs with pre-tax money in them, the pro-rata rule applies. This rule says the IRS will treat all your IRAs as one pool for tax purposes, and you cannot convert only the after-tax portion.

Here is an example: suppose you have a traditional IRA with $50,000 in pre-tax contributions (from old 401(k) rollovers) and you contribute $7,000 after-tax to a new traditional IRA. When you convert the $7,000, the IRS sees $57,000 total across all your IRAs. It calculates that $50,000 out of $57,000 is pre-tax (about 88 percent). You owe income tax on 88 percent of the $7,000 conversion, or roughly $6,160.

If you have pre-tax IRA balances, you have two options: roll the pre-tax money into a 401(k) or other employer plan (if your plan allows it) before doing the backdoor conversion, or accept the tax bill. Rolling pre-tax IRAs into a 401(k) removes them from the pro-rata calculation and lets you convert the after-tax money tax-free.

Filing Form 8606 with your tax return

You must file Form 8606 (Nondeductible IRAs) with your federal tax return for the year you do the conversion. This form tells the IRS that you made a non-deductible contribution and converted it to a Roth.

Form 8606 has three parts. Part I reports your non-deductible contribution to the traditional IRA. Part II reports the conversion to the Roth. Part III calculates how much of the conversion is taxable (this is where the pro-rata rule comes in). You file it with your 1040 and supporting schedules.

If you do not file Form 8606, the IRS may treat the entire conversion as taxable income, and you could face penalties and interest. If you file it late, you can usually request relief from the IRS, but it is simpler to file it on time.

Tax consequences and planning before you convert

The conversion creates a tax bill in the year you do it. If you convert $7,000 and have no pre-tax IRA balances, you owe income tax on $7,000 at your marginal tax rate. If you are in the 24 percent federal bracket, that is $1,680 in federal tax (plus any state income tax).

Pay this tax from money outside the IRA. Do not take the tax payment from the Roth IRA itself—that reduces the amount you are converting and may trigger early withdrawal penalties if you are under 59½.

Some people do backdoor conversions in years when their income is lower or when they have losses to offset the conversion income. Others spread conversions over multiple years to keep each year's tax bill manageable. There is no rule against doing multiple backdoor conversions, as long as you follow the steps each time and file Form 8606 for each year.

Common mistakes and how to avoid them

The most common mistake is having pre-tax IRA balances and not knowing about the pro-rata rule. Before you start, check all your IRA accounts at all institutions. If you have old 401(k)s with pre-tax money, roll them into your current employer's 401(k) or into a rollover IRA (which is still subject to the pro-rata rule, so this does not help). If you cannot roll them, factor the pro-rata tax into your decision.

Another mistake is waiting too long between the contribution and the conversion. The IRS does not set a time limit, but converting within a few days or weeks shows clear intent and avoids questions if the money earns gains. If you contribute in December and convert in February, the IRS might scrutinize the transaction more closely.

A third mistake is claiming a tax deduction for the traditional IRA contribution. If you claim a deduction, the IRS will treat the entire conversion as taxable. Check your tax software or ask your tax preparer whether you are may be able to access to deduct a traditional IRA contribution based on your income and whether you have an employer retirement plan.

Frequently Asked Questions

Can I do a backdoor Roth if I have a 401(k) at work?

Yes. A 401(k) does not affect the backdoor Roth process. The pro-rata rule applies only to IRAs, not to 401(k)s or other employer plans. If you have pre-tax money in a 401(k), it does not count toward the pro-rata calculation for your Roth conversion.

What if I convert the money but do not file Form 8606?

The IRS may treat the entire conversion as taxable income, and you could owe tax on money you thought was after-tax. You may also face penalties and interest. File Form 8606 as soon as you can, even if it is late. The IRS allows late filings with a reasonable cause explanation.

Can I undo a backdoor Roth conversion if I change my mind?

You can recharacterize a conversion back to a traditional IRA, but only if you do it by the tax filing deadline (including extensions) for that year. After that deadline, the conversion is permanent. Recharacterization is rare and usually done only if the market drops sharply after conversion.

Do I have to do the backdoor Roth every year?

No. You can do it once, multiple times, or never. Each backdoor conversion is a separate transaction. If your income drops below the Roth contribution limit in a future year, you can contribute directly and skip the backdoor process.

What if my brokerage will not let me convert to a Roth?

Most brokerages allow Roth conversions, but some smaller institutions may not offer Roth IRAs. If yours does not, open a Roth IRA at a major brokerage (Fidelity, Vanguard, Schwab, or similar) and request a trustee-to-trustee transfer from your traditional IRA to the new Roth.